SunLink (SSY) Announces Fiscal 2012 Fourth Quarter and Full-Year Results

SunLink Health Systems, Inc. (NYSE MKT: SSY) today announced earnings from continuing operations for its fourth fiscal quarter ended June 30, 2012 of $4,213,000, or $0.45 per fully diluted share, compared to a loss from continuing operations of $10,708,000, or a loss of $1.32 per fully diluted share, for the quarter ended June 30, 2011. The results for the quarter ended June 30, 2012 include $7,508,000 of pre-tax Medicare electronic health records incentive payments. The results for the quarter ended June 30, 2011 included a pre-tax impairment charge of $13,347,000 relating to the April 2008 acquisition of the company’s Specialty Pharmacy Segment. Net earnings for the quarter ended June 30, 2012 were $5,114,000, or $0.54 per fully diluted share, compared to a net loss of $11,255,000, or $1.39 per fully diluted share, for the quarter ended June 30, 2011. The results for Memorial Hospital of Adel, which was sold on July 1, 2012, are included in discontinued operations for all periods shown.

Consolidated net revenues from continuing operations for the quarters ended June 30, 2012 and 2011 were $34,635,000 and $34,667,000, respectively, a decrease of 0.1% in the current year’s quarter. The Healthcare Facilities Segment net revenues in the current quarter of $26,504,000 decreased $1,319,000, or 4.7%, compared to $27,821,000 from the prior year. The Specialty Pharmacy Segment revenues of $8,131,000 in the quarter ended June 30, 2012 increased $1,287,000, or 18.8% from the prior year.

The company had an operating profit from continuing operations for the quarter ended June 30, 2012 of $7,515,000, compared to an operating loss from continuing operations for the quarter ended June 30, 2011 of $15,754,000, which included the $13,347,000 impairment relating to the Specialty Pharmacy Segment. Excluding the impairment charges, the operating margin increased in the current year’s quarter primarily due to the $7,508,000 of electronic health records incentive payments compared to $277,000 of electronic health records incentive payments in the quarter ended June 30, 2011. Adjusted EBITDA (a non-GAAP measure of the liquidity of the company) at SunLink’s Healthcare Facilities Segment in the fourth fiscal quarter increased to $9,105,000, which included $7,508,000 of electronic health records incentive payments, from $612,000 which included $277,000 of electronic health records incentive payments, in the comparable quarter a year ago. Adjusted EBITDA for SunLink’s Specialty Pharmacy Segment was $730,000 in the fourth fiscal quarter compared to Adjusted EBITDA loss of $377,000 in the comparable quarter a year ago.

For the fiscal year ended June 30, 2012, SunLink reported earnings from continuing operations of $652,000, or $0.07 per fully diluted share, compared to a loss of $15,416,000, or a loss of $1.90 per fully diluted share, for the comparable period last year. For the fiscal year ended June 30, 2012, SunLink reported net earnings of $1,081,000, or $0.12 per fully diluted share, compared to a net loss of $16,103,000, or $1.99 per share, for the fiscal year ended June 30, 2011.

Consolidated net revenues from continuing operations for the fiscal year ended June 30, 2012 decreased by 5.0% to $146,674,000 compared to $154,380,000 in the comparable period a year ago. The Healthcare Facilities Segment had net revenues in the fiscal year ended June 30, 2012 of $108,575,000 compared to $114,460,000 for the comparable period a year ago. The Specialty Pharmacy Segment had $38,099,000 of net revenues for the year ended June 30, 2012 compared to $39,920,000 last year.

Operating profit from continuing operations for the fiscal year ended June 30, 2012 of $5,908,000 compared to an operating loss of $16,597,000 for the fiscal year ended June 30, 2011. Adjusted EBITDA for SunLink’s Healthcare Facilities Segment increased to $14,801,000 which included $9,134,000 of electronic health records incentive payments, in the fiscal year ended June 30, 2012, from $7,037,000 last fiscal year, which included $277,000 of electronic health records incentive payments. Adjusted EBITDA for the year ended June 30, 2012 for the Specialty Pharmacy Segment was $1,273,000 compared to $446,000 last fiscal year.

Commenting on the results, Robert M. Thornton, Jr., chairman and CEO, stated, “Our efforts this year have been focused on improving the position of our hospital facilities through cost controls, technology upgrades and additional specialized services, while improving our balance sheet with facility-specific re-financings and the sale of underperforming assets. While our efforts are a work-in-progress, we made significant strides this year that we believe will benefit our shareholders as we move forward.”

SunLink Health Systems, Inc. is the parent company of subsidiaries that operate hospitals and related businesses in the Southeast and Midwest, and a specialty pharmacy company in Louisiana. Each hospital is the only hospital in its community and is operated locally with a strategy of linking patients’ needs with dedicated physicians and healthcare professionals to deliver quality efficient medical care. For additional information on SunLink Health Systems, Inc., please visit the company’s website at www.sunlinkhealth.com.

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding the company’s business strategy. These forward-looking statements are subject to certain risks, uncertainties and other factors, which could cause actual results, performance and achievements to differ materially from those anticipated. Certain of those risks, uncertainties and other factors are disclosed in more detail in the company’s Annual Report on Form 10-K for the year ended June 30, 2012 and other filings with the Securities and Exchange Commission which can be located at www.sec.gov.

Adjusted earnings before income taxes, interest, depreciation and amortization

Earnings before income taxes, interest, depreciation and amortization (“EBITDA”) represent the sum of income before income taxes, interest, depreciation and amortization. We understand that certain industry analysts and investors generally consider EBITDA to be one measure of the liquidity of the company, and it is presented to assist analysts and investors in analyzing the ability of the company to generate cash, service debt and meet capital requirements. We believe increased EBITDA is an indicator of improved ability to service existing debt and to satisfy capital requirements. EBITDA, however, is not a measure of financial performance under accounting principles generally accepted in the United States of America and should not be considered an alternative to net income as a measure of operating performance or to cash liquidity. Because EBITDA is not a measure determined in accordance with accounting principles generally accepted in the United States of America and is thus susceptible to varying calculations, EBITDA, as presented, may not be comparable to other similarly titled measures of other corporations. Net cash provided by (used in) operations for the three and twelve months ended June 30, 2012 and 2011, respectively, is shown below. Healthcare Facilities Adjusted EBITDA and Specialty Pharmacy Adjusted EBITDA is the EBITDA for those facilities without any allocation of corporate overhead, impairment charges and gains on sale of businesses.

			Three Months Ended												Twelve Months Ended
			June 30,												June 30,
				2012						2011						2012						2011
Healthcare Facilties Adjusted EBITDA			$	9,105,000					$	612,000					$	14,801,000					$	7,037,000
Specialty Pharmacy Adjusted EBITDA				730,000						(377,000	)					1,273,000						446,000
Corporate overhead costs				(1,225,000	)					(1,233,000	)					(4,558,000	)					(5,036,000	)
Taxes and interest expense				(3,483,000	)					5,079,000						(5,165,000	)					1,298,000
Other non-cash expenses and net change in
operating assets and liabilities				(1,389,000	)					3,202,000						(3,269,000	)					1,034,000
Net cash provided by operations			$	3,738,000					$	7,283,000					$	3,082,000					$	4,779,000

SUNLINK HEALTH SYSTEMS, INC. ANNOUNCES
FISCAL 2012 FOURTH QUARTER AND ANNUAL
RESULTS
Amounts in 000’s, except per share and volume amounts
CONSOLIDATED STATEMENTS OF EARNINGS
		Three Months Ended June 30,																									Twelve Months Ended June 30,
				2012												2011											2012											2011
										% of Net												% of Net											% of Net											% of Net
				Amount						Revenues						Amount						Revenues					Amount						Revenues					Amount						Revenues
Net Revenues				$	34,635						100.0	%				$	34,667					100.0	%				$	146,674					100.0	%				$	154,380					100.0	%
Costs and Expenses:
	Cost of goods sold				4,914						14.2	%					4,296					12.4	%					26,073					17.8	%					27,835					18.0	%
	Salaries, wages and benefits				15,195						43.9	%					16,032					46.2	%					63,263					43.1	%					63,846					41.4	%
	Provision for bad debts				3,443						9.9	%					4,788					13.8	%					14,024					9.6	%					16,841					10.9	%
	Supplies				2,372						6.8	%					2,631					7.6	%					9,882					6.7	%					11,083					7.2	%
	Purchased services				2,422						7.0	%					2,447					7.1	%					9,367					6.4	%					10,031					6.5	%
	Other operating expenses				4,500						13.0	%					4,982					14.4	%					18,908					12.9	%					19,671					12.7	%
	Rents and leases				687						2.0	%					766					2.2	%					2,775					1.9	%					2,903					1.9	%
	Impairments of goodwill and intangible assets				–						0.0	%					13,347					38.5	%					931					0.6	%					13,347					8.6	%
	Depreciation and amortization				1,095						3.2	%					1,409					4.1	%					4,677					3.2	%					5,697					3.7	%
	Electronic Health Records incentives				(7,508	)					-21.7	%					(277	)				-0.8	%					(9,134	)				-6.2	%					(277	)				-0.2	%
Operating Profit (Loss)					7,515						21.7	%					(15,754	)				-45.4	%					5,908					4.0	%					(16,597	)				-10.8	%
	Interest Expense				(985	)					-2.8	%					(1,749	)				-5.0	%					(4,392	)				-3.0	%					(7,433	)				-4.8	%
	Interest Income				4						0.0	%					1					0.0	%					14					0.0	%					5					0.0	%
	Loss on disposal of assets				(34	)					-0.1	%					–					0.0	%					(20	)				0.0	%					–					0.0	%
Earnings (Loss) from Continuing Operations before
	Income Taxes				6,500						18.8	%					(17,502	)				-50.5	%					1,510					1.0	%					(24,025	)				-15.6	%
Income Tax Expense (Benefit)					2,287						6.6	%					(6,794	)				-19.6	%					858					0.6	%					(8,609	)				-5.6	%
Earnings (Loss) from Continuing Operations					4,213						12.2	%					(10,708	)				-30.9	%					652					0.4	%					(15,416	)				-10.0	%
Earnings (Loss) from Discontinued Operations,
	net of income taxes				901						2.6	%					(547	)				-1.6	%					429					0.3	%					(687	)				-0.4	%
	Net Earnings (Loss)			$	5,114						14.8	%				$	(11,255	)				-32.5	%				$	1,081					0.7	%				$	(16,103	)				-10.4	%
Earnings (Loss) Per Share from Continuing Operations:
	Basic			$	0.45											$	(1.32	)									$	0.07										$	(1.90	)
	Diluted			$	0.45											$	(1.32	)									$	0.07										$	(1.90	)
Earnings (Loss) Per Share from Discontinued Operations:
	Basic			$	0.10											$	(0.07	)									$	0.05										$	(0.08	)
	Diluted			$	0.10											$	(0.07	)									$	0.05										$	(0.08	)
Net Earnings (Loss) Per Share:
	Basic			$	0.54											$	(1.39	)									$	0.12										$	(1.99	)
	Diluted			$	0.54											$	(1.39	)									$	0.12										$	(1.99	)
Weighted Average Common Shares Outstanding:
	Basic				9,448												8,119											9,350											8,094
	Diluted				9,448												8,119											9,350											8,094
HEALTHCARE FACILITIES VOLUME STATISTICS
	Admissions				1,006												1,269											4,631											5,226
	Equivalent Admissions				3,956												3,951											16,345											16,118
	Surgeries				539												569											2,077											2,400
	Net revenue per equivalent admission			$	6,672											$	7,013										$	6,617										$	7,092
	SUMMARY BALANCE SHEETS			June 30,						June 30,
					2012						2011
	ASSETS
	Cash and Cash Equivalents			$	2,057					$	7,250
	Accounts Receivable – net				13,228						16,302
	Other Current Assets				15,333						19,813
	Property Plant and Equipment, net				30,908						33,684
	Long-term Assets				17,646						14,781
				$	79,172					$	91,830
	LIABILITIES AND SHAREHOLDERS’ EQUITY
	Current Liabilities			$	31,814					$	31,332
	Long-term Debt and Other Noncurrent Liabilities				18,067						34,430
	Shareholders’ Equity				29,291						26,068
				$	79,172					$	91,830